On January 9th, the People's Bank of China announced that it will issue the first batch of offshore RMB central bank bills for 2025 on January 15th through the Hong Kong Monetary Authority's Central Moneymarkets Unit (CMU) bond bidding platform. This issuance amounts to 60 billion yuan, setting a new record for the largest single issuance of offshore RMB central bank bills.
New Central Bank Bills Issuance with Clear Objectives
These offshore RMB central bank bills are six-month fixed-rate interest-bearing bonds, to begin on January 17th, with principal and interest payable at maturity. According to the announcement, the issuance aims to enrich the high-credit-quality RMB financial products in Hong Kong, improve the RMB yield curve, and adjust offshore RMB market liquidity, thereby supporting the stability of the offshore RMB exchange rate.
Unlike previous rollovers, this is a new issuance. Market analysts view the increase in offshore RMB central bank bills as a demonstration of the People's Bank of China's determination to tighten RMB liquidity and stabilize the exchange rate.
Rising Costs of RMB Funds in the Offshore Market
Since the beginning of the year, the cost of RMB funds in the offshore market has continued to rise, with key indicators of funding costs—the Hong Kong Interbank Offered Rate (Hibor) for RMB—rising across all major terms. As of January 8th, the overnight Hibor had risen to 8.10%, the highest in nearly three years; the one-month Hibor also reached new highs since April 2024.
Experts believe this issuance of offshore central bank bills will somewhat alleviate the RMB funding tensions in the offshore market and help balance the supply and demand in the foreign exchange market.
Stabilizing Expectations and Boosting RMB Exchange Rate
Zhou Maohua, a macro researcher at Everbright Bank's Financial Markets Department, pointed out that the issuance of offshore RMB central bank bills can not only meet the demand for high-grade RMB assets among overseas investors but also support the RMB exchange rate by adjusting offshore market liquidity. This move helps guide market expectations and stabilize the RMB exchange rate at a reasonable equilibrium level.
Pang Ming, a senior research fellow at the National Financial and Development Laboratory, indicated that the issuance of central bank bills compresses the spread between onshore and offshore RMB, raising the cost of speculating on the RMB and reducing the risk of forming one-sided market expectations, preventing significant exchange rate fluctuations.
Abundant Policy Tools for Coping with Exchange Rate Fluctuations
Experts generally believe that the People's Bank of China has ample policy tools and experience to manage RMB exchange rate fluctuations. Zhong Linnan, a senior macro analyst at GF Securities, noted that the central bank can further stabilize the RMB exchange rate by increasing the use of counter-cyclical adjustment factors and expanding the scale of offshore central bank bill issuance.
The issuance of 60 billion yuan in offshore RMB central bank bills marks the People's Bank of China's robust regulation capabilities in the foreign exchange market, infusing confidence into the market and reflecting its policy determination to stabilize the exchange rate at critical times. In the future, the RMB exchange rate is expected to remain generally stable within a reasonable range.
